Korean gov’t needs to take cue from advanced countries on crypto rules

By Yi Whan-woo | Korea Times

The financial authorities here are facing growing calls to recognize cryptocurrencies as a new asset class and preemptively overhaul regulations in order to prevent virtual asset-related fraud and protect individual investors.

Such calls come as cryptocurrencies are increasingly becoming a mainstream form of investment in Korea. According to Coin Market Cap, a popular data source for price changes in “crypto assets,” the combined daily turnover at the nation’s top four cryptocurrency exchanges ― Bithumb, Upbit, Coinone and Corbit ― reached 4.5 trillion won ($4 billion), May 7, triple the size of the trading volume on the main KOSPI bourse.

The financial regulators, however, have been refusing to set up rules and relevant laws on crypto assets citing their huge volatility. They believe that such assets lack the features required to be considered as a money equivalent, such as a means of payment or significant worth.

Their conservative stance has drawn criticism from cryptocurrency investors, who are complaining about the government’s dubious stance of seeing no monetary value in crypto assets, while at the same time trying to tax gains from them.

During a National Assembly hearing, May 6, Prime Minster-nominee Kim Boo-kyum accused the government of being “irresponsible.”

Kim said the government “should not leave investors hanging just because it is not sure about what to do.”

Lee Jong-koo, a former high-ranking official at the Financial Services Commission (FSC) and a senior official at the Korea Blockchain Association, has urged the administration to enact a new law on regulating crypto assets.

“There is no unified and consistent law on crypto assets, while there are millions of cryptocurrency investors, and daily turnover reaches tens of trillions of won,” he said.

Park Sung-joon, head of the Blockchain Research Center at Dongguk University, voiced a similar view.

“Since the creation of the cryptocurrency market, the government has not changed a bit in its refusal to recognize the market. This will only make the situation worse, so the government should begin to overhaul related policies,” he said.

Live price charts of cryptocurrencies are shown on a market board at a crypto asset exchange in Seoul, April 27. Yonhap
Financial Services Commission (FSC) Chairman Eun Sung-soo speaks at a National Assembly meeting, April 22. Eun is one of the top financial regulators who refuse to recognize cryptocurrencies as financial assets. Yonhap

Despite these growing calls, the financial authorities remain standing on the sidelines, balking at coming up with new rules.

FSC Chairman Eun Sung-soo has been under fire since April 22, when he showed no intention of protecting cryptocurrency investors, while referring to them, many in their 20s and 30s, as “young people who spend money on digital currencies that have no intrinsic value.”

He also warned of a massive shutdown of cryptocurrency exchanges if they fail to register by Sept. 24.

His remarks led to agitated responses from investors, including a man, who called himself “an ordinary office worker” in his 30s, who asked Eun to ruminate on “what caused the country’s young people to face this situation and who created the wrong path of today.”

In a petition he posted on the Cheong Wa Dae website, the man highlighted the despair felt by many young people about the lack of jobs and opportunities amid “endless competition.”

Finance Minister Hong Nam-ki added to the woes facing cryptocurrency investors when he said, April 27, that the government will push ahead with its plan to tax capital gains from cryptocurrency trading starting next year.

Currently, the regulators have had local banks monitor transactions on the cryptocurrency market. The Financial Intelligence Unit, an entity under the FSC responsible for ensuring transparency of financial transactions, left it up to commercial banks to come up with regulations when they requested the regulator to set up guidelines on cryptocurrency exchange transactions.

However, it is impossible for banks to check individual transactions at cryptocurrency exchanges as only Bithumb, Upbit, Coinone and Corbit out of more than 100 operating here have signed partnerships with commercial banks.

“It is impossible for commercial banks to find out on their own which exchanges are transparent and trustworthy in terms of transactions,” a bank official said on condition of anonymity. “It is comparable to asking securities firms to verify transparency of every stock they trade.”

Under the circumstances, experts are asking the government to take into account examples from other countries, such as the United States, Japan and Singapore, which have either relevant regulations or laws to oversee the digital coin market and protect investors.

The U.S. has been active in regulating virtual assets and creating protective measures. The Securities and Exchange Commission there has recognized cryptocurrencies as financial and securities instruments, while the operation of exchanges is controlled by each state.

For example, in New York, the state government is protecting investors by introducing a licensing system for exchange operators and forcing them to adhere to disclosure requirements.

Japan is known to have the world’s most progressive regulatory climate for cryptocurrencies. It recognizes Bitcoin and other digital currencies as legal assets under the Payment Services Act.

Also the world’s biggest market for Bitcoin, Japan’s tax agency decided in December 2017 that gains on cryptocurrencies should be categorized as “miscellaneous income” and investors taxed accordingly.

Singapore also recognizes cryptocurrencies as investment instruments and allows only those who have obtained licenses from the authorities to operate exchanges. It also treats Bitcoins as “goods” and applies the Goods and Services Tax, which is equivalent to a value-added tax in other countries.

Copyright © 2021 Korea Times

Leave a Reply